From Canadian corporate elite to transnational capitalist class: transitions in the organization of corporate power

Canadian Review of Sociology and Anthropology, The, August, 2007 by William K. Carroll

Corporate Governance Reform, Financialization and the Recomposition of Finance Capital

Transitions in the organization of corporate power are not only structural, they are cultural. The "classic" normative order of the corporate elite, evident in John Porter's day, was patriarchal and oligarchic. It comprised what Porter (1965) termed a "confraternity of power" closed to such trespassers as women and ethnic minorities, and was concerned more with control of capital than with its competitive performance. The spread of a discourse of improved "corporate governance" in the 1990s, through stock exchange task forces and think tank initiatives, marked a key cultural transition.

In Canada, governance reforms had the same two-faced quality as corporate power itself: they sought to recover the moral legitimacy that had been ceded in the financial scandals of the early 1990s (e.g., the collapse of Confederation Life), but also promised higher returns on investment. My analysis of the Canadian business press in the late 1990s (2004: 33-38) revealed a value framework centred around 1) a meritocratic professionalism and cosmopolitanism, incorporating concerns for representation of women and ethnic minorities, 2) effective board decision making and, especially, 3) the priority of shareholder value--of ever-rising share prices for stockholders.

As a project of moral and intellectual reform, the new norms of corporate governance were well adapted to a liberalized regime in which state regulation had given way to business self-regulation and heightened international competition had created new performance pressures. Beyond embodying a transition in corporate elite culture, they carried implications for the organization of corporate power. In 1995 the Toronto Stock Exchange placed non-binding regulations on corporate boards, mandating that they become more active stewards, more independent of management and other non-shareholding interests, and small enough to facilitate effective decision making (Carroll, 2004: 34). The structural impact was immediate. By 1996, interlocks involving non-CEO corporate officers had disappeared, bankers had left the boards of industrials, and banks had slimmed their elephantine directorates. This left a looser elite structure in which the banks continued to participate alongside transnational corporations, at the centre of a network of information flows across outside directorships. (4)

If the catalyst for corporate governance reform was financial scandal, its most immediate causal agent was the rise of active institutional shareholders interested in corporate strategy. The greying of the baby-boom generation has brought a massive pool of deferred wages earmarked for retirement, and as the overall rate of economic growth (Canadian and global) has declined the pressure to show strong financial returns on this mass of financial capital has increased. By 1996, institutional investors held 40 per cent of the equity of publicly traded Canadian companies. Traditionally, institutional investors exerted allocative power via their exit option, rather than strategic power in the form of voice. But as major institutional investors become locked in to their equity stakes, they turn to the exercise of voice as a profit-maximization strategy, exerting "steadily increasing pressure" on corporate managers to improve performance and "working to improve the governance of firms in which they invest" (Morck and Nakamura, 1995: 497). (5) This enhanced strategic power comprises another aspect of the transition to a new form of finance capital. In the process, the constellations of interests atop major firms have shifted from salaried managers and bankers towards "shareholders"--whether institutional or familial.